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ENGINEERING CONTRACTS. 



A LECTURE 



Delivered in the Spring of 1905 to Students of Engineering 
IN THE Following Institutions: 

STEVENS INSTITUTE OF TECHNOLOGY, RENSSELAER POLY- 
TECHNIC institute, UNIVERSITY OF ILLJ'NOIS, 
UNIVERSITY OF KANSAS. 



BY 



J. A. L. WADDELL, D. SC. LL. D. 



\ 



K^^ 



1 Je'06 



Engineering Contracts. 

A Lecture to Civil Engineering Students. 

By J. A. L. Waddell, D. Sc, LL. D., 
Young Gentlemen: 

Some two years ago I delivered to the Senior Class of the 
Rensselaer Polytechnic Institute a lecture on the subject of 
''Specifications," and in it I touched but lightly on that of ''Con- 
tracts/' merely quoting from the standard form of contract of 
my firm certain clauses that were needed to make my discourse 
complete. Engineering contracts, however, are of such im- 
portance to the profession as to be worthy of a special lecture de- 
voted to their discussion, and this I purpose giving you to-day. 
The fact that the subject is treated very thoroughly in several 
standard works might at first thought lead one to believe that a 
lecture on it is superfluous, but such is not the case, because 
what I have to say is in a sense supplementary to that which is 
found in the books. Moreover, by discussing it from the strictly 
practical point of view, and thus making it more interesting 
than a study of law-books, which;: as you all know, are notori- 
ously dry reading, I hope so to present the matter that it will 
appeal directly to engineering students. 

In one sense this lecture is a sequel to that on "Specifica- 
tions,'' and will be appreciated better by those who have read 
the latter; nevertheless, I shall endeavor to make the treatment 
of the new subject complete in itself and independent of the 
preceding lecture. The general plan, however, is the same for 
both, viz,, a dissertation concerning the theory or science of 
writing followed by illustrations taken from actual practice. 

The dividing line between specifications and contracts is 
most difficult to draw, for in any particular case two engineers 
will rarely agree as to what clauses pertain properly to the speci- 
fications and what to the contract, of which the specifications 
form a part. Some engineers prefer to throw nearly everything 
into the specifications and thus keep the size of the contract 
proper as small as possible, while others make the latter very 
extensive by including in it many clauses that are ordinarily 
found in the specifications. Again, others make a practice of 
repeating in the contract certain clauses that have already beer^ 



covered in the specifications. In my opinion, the last mentioned 
method is open to criticism in that it is liable to result in con- 
flicting clauses; nevertheless, it is quite possible that my prac- 
tice has not invariably been entirely free from this objectionable 
feature — it is so hard to be always consistent; and again, one's 
methods are a matter of development and are not created perfect 
at one essay. 

Before proceeding to the direct treatment of my subject I 
shall endeavor to make clear to you the method that I have 
adopted for locating the dividing line between specifications and 
contracts. I say ''endeavor" advisedly, for I am not sure that I 
can always give a satisfactory rule or reason for any particular 
division; because absolute consistency is an attribute that, strive 
as one will to attain it, lies ever just beyond reach. 

My preference is to throw as much of the matter as possible 
into the specifications and reduce the size of the contract proper 
to a minimum, avoiding repetition of statement in the two parts 
of the work, but of necessity treating certain subjects in both 
parts, though from different points of view. There is no doubt 
about the proper place for most of the topics or headings, but in 
certain cases there are plausible reasons for locating them in 
either division. All clauses that relate to methods of construc- 
tion, qualities of materials, character and excellence of the work, 
rules limiting the functions and powers of the Contractor and 
defining the authority of the Engineer, directions to bidders, and 
transportation of men and materials unquestionably belong to the 
specifications; but such clauses as those relative to adherence to 
specifications, alteration of plans, damages, extras, payments, 
responsibility for accidents, the spirit of the specifications, strict- 
ness of inspection, liquidated damages, scope of the contract, 
and time of completion might perhaps be properly inserted in 
either division. My custom, however, is to include all of these 
clauses and others of like character and scope in the specifica- 
tions. 

Nine out of ten of the contracts that an engineer has to 
prepare are in connection with construction, and an intelligent 
specialist soon learns how to prepare satisfactory specifications 
and contracts for all ordinary kinds of work; but this style of 
contract is by no means the only type with which an engineer 
is concerned, for he is sometimes called upon to draft agree- 
ments between promoters of enterprises and capitalists, be- 
tween himself and promoters of enterprises, between two 
engineers, between two contractors, or between a bond 



company and a contractor. Some of these unusual types 
are exceedingly difficult to draft properly, as, owing to their 
varying conditions, they cannot be systematized. It is mainly 
with them, therefore, that this lecture on contract writing is con- 
cerned; because for construction in general it is practicable to 
evolve a form which, when correctly filled out, will apply to any 
ordinary case. 

The importance of drafting contracts properly cannot well 
be overestimated. An incorrectly drawn agreement is almost 
certain to involve serious trouble and often pecuniary loss to an 
innocent party; hence it behooves engineers to study thoroughly 
and fundamentally the science or art of contract writing. 

Whether it be really a science or an art is a mooted point; 
but, in my opinion, the writing of proper specifications and con- 
tracts is certainly worthy to be termed a science. 

Before one can draft a contract, he must have clearly in 
mind a full and well defined idea of all the conditions and 
desiderata, and he should epitomize these systematically before 
beginning to write. It is advisable to keep constantly in view 
the possibility that each party to the contract may be unscrupu- 
lous and willing to take every possible advantage of every weak- 
ness which the contract may contain and which will tend to his 
own profit, — honor and integrity to the contrary notwithstanding. 
Failure to do this will often result in some ambiguity that will 
cause rank injustice to one of the parties to the agreement. It 
is difficult for an engineer to recognize this weakness of human 
nature and to bear it steadily in mind when writing contracts; 
because the training and the work of engineers tend to develop 
in them to an eminent degree the principles of absolute honesty ; 
consequently, it comes hard for them to be forced to make a prac- 
tice of doubting the integrity of their business associates. To 
mistrust the motives of one's fellow men is disagreeable but es- 
sential, if the writer of specifications and contracts is to protect 
himself or his clients from loss and fraud. 

Concerning this matter I speak from sad experience, for in 
my business career I have at times suffered severely from the ill 
effects of a too-trusting reliance upon the honorable intentions 
of those with whom I have done business ; and, while this un- 
fortunate experience, I am happy to say, has not caused me to 
mistrust the goodness of human nature in general, it has taught 
me the necessity for exercising the utmost caution in drawing 
contracts, so as not to put temptation in the way of either party 
by inserting a single clause of which he could take advantage by 
compelling the other party to do something that was not cou^ 



templated when the agreement was made. Occasionally it hap- 
pens that after a contract is executed, one of the parties finds 
a flaw that will give him an improper advantage; and it is only 
a strictly just and upright man who will refuse to avail himself 
of such a weakness in the document. 

The essential elements of any contract, according to Mr. 
John Cassan Wait, the noted authority on "Engineering and 
Architectural Jurisprudence,'' are as foUoWs: 

''1st. Two parties with capacity to contract. 

2nd. A lawful consideration: a something in exchange for 
its legal equivalent, a quid pro quo, 

3rd. A lawful subject-matter, whether it be a promise, an 
act, or a material object. 

4th. Mutuality: a mutual assent, a mutual understanding, 
a meeting of the minds of the parties." 

Without these four elements no contract is binding in law. 

The essentials of a well drawn contract that comes within 
the province of the engineer, however, are as follows: 

1st. A proper and customary form. 

2nd. A full and correct description of all parties to the 
agreement. 

3rd. A thorough and complete preamble. 

4th. A statement of when and under what conditions the 
contract is to become operative. 

5th. The limit, if any, for duration of contract. 

6th. An exhaustive statement of what each party to the 
contract binds himself, his executors, administrators, successors, 
or assigns to do or to refrain from doing. 

7th. A clearly defined enunciation of the consideration 

which each party is to receive — this is the essential raison d'etre 
of the instrument. 

8th. The forecasting of all possible eventualities that would 
materially affect the agreement, and a full statement of every- 
thing that is to be done in case of each eventuality. 

9th. Penalties for failure to comply with the various terms 
of the agreement. 

10th. Provision for possible cancellation of contract. 

11th. Provision for settlement of all business relations cov- 
ered by the contract or resulting therefrom in case of cancella- 
tion, taking into account all possible important eventualities. 

12th. Mention of the place where the agreement is drawn 
or of the place where it is to be put in force, so as to show the 
state under the laws of which the validity of the contract is to 
be determined, should suit be necessary to enforce it. 



13th. Methods of payments, if any are to be made. 

14th. Provision for extra compensation and the limitations 
connected therewith. 

15th. Provision for possible changes in contract. 

16th. Provision for transfer of the contract or for sub-let- 
ting. 

17th. Provision for settlement of disputes. 

18th. Provision for satisfactory and sufficient bond, if any 
be needed. 

19th. Provision for defense of lawsuits, if such provision 
be necessary. 

20th. Definition of names used in contract such as "En- 
gineer,'' "Company," "Contractor," or "Trustee." 

21st. Dating of contract. 

22nd. Proper signatures with the necessary seals, if the 
latter be required. 

23rd. Witnesses to the signatures, or execution before a 
notary public. 

I shall now take up and discuss in the order of their enu- 
meration each of these essentials to a properly drawn contract. 

1st. The styles of opening clause for contracts are both 
numerous and varied, and it is difficult to say which is the best. 
Each writer naturally will have one favorite style and will ad- 
here to it whenever possible. Mine for many years has been as 
follows: (In order to make it more readable I shall fill out the 
spaces with some assumed names and a date.) 

MEMORANDUM OF AGREEMENT, made and signed 
this eleventh day of February, 1905, by and between the Kansas 
City Bridge and Terminal Railway Company, a corporation of 
the State of Missouri, the party of the first part, and sometimes 
termed in this agreement and in the specifications the "Com- 
pany," and The Western Contracting Company, a corporation 
of the State of Kansas, the party of the second part, and some- 
times termed in this agreement and in the specifications the 
"Contractor." 

Wait recommends the two following forms of introduction: 

This Agreement, made and entered into this eleventh day 
of February in the year of 1905 by and between, etc., etc. 

Articles of Agreement, made and entered into between The 
Kansas City Bridge and Terminal Railway Company, a corpora- 
tion, etc., etc., and The Western Contracting Company, a cor- 
poration, etc., etc., on this eleventh day of February, 1905. 

After the introductory clause comes the preamble, and imme- 
diately after it I insert in capital letters "NOW THIS AGREE- 



MENT WITXESSETH," and follow with consecutively num- 
bered clauses that embody all the terms and conditions of the con- 
tract, then close with provision for the signatures and seals of the 
contracting parties and witnesses to these signatures. 

2nd. In describing the. various parties to an agreement, 
care should be taken to make the description full and convincing 
in order that there shall be no possible mistake concerning the 
identity of each party. This is effected in the case of an individ- 
ual by stating his occupation and place of residence, in the case 
of a firm by naming it fully, mentioning its place of business, 
and describing the kind of partnership, and in case of a com- 
pany by giving its legal title and the name of the state or coun- 
try where it was incorporated. In case of a partnership it is 
sometimes well to specify whether it is general or special in 
respect to the work covered in the contract. 

While most contracts are drawn between but two parties, it 
sometimes occurs that an agreement will involve three or even 
more. Such a contract is much more complicated and difficult 
to draft than one between two parties only. 

Each party should be designated in the instrument by his 
special number, as the party of the first part or the party of the 
second part ; and in addition it is well to give each another desig- 
nation, such as ''Contractor,'' "Company," ''Owner,'' "Engineer,''^ 
"Promoter," Board," "Cit}^" "Incorporator," or "Trustee" in 
order to avoid the use of too many words throughout the docu- 
ment, as would be the case were he always referred to as the 
party of the first or second part. In order to make assurance 
doubly sure it is well in some cases to define the terms "Contrac- 
tor," "Company," Engineer," "Promoter," etc., at the end as 
well as at the beginning of the document. In any case these ex- 
planator}' clauses should be placed at the beginning or the end 
of the specifications, because the latter are often used without 
the contract being attached. 

There is no strict rule as to the order in which the several 
parties shall be placed, but it is customary to make the one who 
pays the money the party of the first part. In case of employer 
and employee the employer should come first. In other cases 
it is a good rule to put the most important party first and the 
others as nearly as may be in the order of the importance of 
their relation to the enterprise or object matter of the agreement. 

There is a consideration of primary importance in contract 
writing that is sometimes overlooked, viz., whether the parties 
to the agreement are legally entitled to enter into contract. For 
instance, in the case of a company, the president or general 



manager, or perhaps either can sometimes legally contract in 
the company's^ name, but sometimes he cannot, in which case, if 
haste be esential, it would be proper to have him enter into and 
sign the contract and afterwards have it formally approved at 
a meeting of the board of directors. A properly certified copy 
of the board's approval should subsequently be attached to the 
contract. Access to its charter and by-laws is generally neces- 
sary to determine who has authority to enter into and sign con- 
tracts for a company. 

In contracting no corporation can exceed the limit of its 
powers as given by its charter. If it attempts to do so, its act 
will be ultra vires and without effect; consequently it behooves 
one in writing a contract with a corporation first to study well 
its charter, articles of incorporation, and by-laws. 

Contracting with unincorporated organizations as parties, 
such as associations, clubs, societies, or congregations, is a pre- 
carious business; nevertheless it often has to be done. In order 
to ensure the payment of money obligations by such parties a 
sufficient sum should be deposited in advance in the hands of a 
reputable trustee with instructions to pay it to the proper party 
or parties as soon as the obligations covered in the contract have 
been met. Otherwise, the other contracting party is liable to 
lose his entire consideration, because it is very difficult to hold 
legally an organization that has no legal existence, even if all 
the members thereof be individually liable. Here again I speak 
from sad experience, for at the outset of my consulting practice 
I lost what I considered then a large fee by dealing with a com- 
mittee of public spirited citizens, who were not honest enough 
to pay their just debts after the proposed enterprise had failed. 
Even the law did not enable me to collect the bill, as my lawyers 
did not present the case to the court in the proper manner. 

Again, any person under twenty-one years of age, termed iii 
law an infant, who enters into a contract, has the privilege of 
repudiating it after arriving at the age of maturity, in case that 
it does not redound to his advantage; consequently it behooves 
the writer of a contract to make sure in all doubtful cases that 
the contracting parties are of age. In engineering contracts, 
however, this question is seldom likely to arise because very 
young men are not often concerned in a prominent way with 
important enterprises. 

Similarly, imbeciles, inebriates, and lunatics are incompe- 
tent, and contracts made by them are legally voidable at their op- 
tion. While it is highly improbable that either an imbecile or a 
lunatic would ever be made a party to an engineering contract, 



it is not impossible that a man chronically addicted to the over 
use of liquor might be so concerned. Such a man might plead 
that he was under the influence of drink when he signed the doc- 
ument and thus possibly effect his release from its obligations, 
consequently the writer of an engineering contract should assure 
himself of the temperate character or at least of the sober con- 
dition of the parties thereto. 

A married woman in some states cannot contract, sue, or be 
sued in her own name. While it is uncommon for women to be 
engaged in enterprises involving engineering, it is by no means 
impossible, as I have learned from a hard lesson ; for in the case 
of a contract for the engineering of a large and novel enterprise 
that I entered into with a certain man, it transpired that he was 
acting as agent for a married woman. Before our work was 
finished the man died, and the woman gave us notice in writing 
that she would assume his share of the contract, and instructed 
us to finish our work. This we did, and she paid us one-half of 
our total fee; but before the date specified in the contract for 
the payment of the second half, the bottom dropped out of the 
scheme, and the lady then refused to make any further payment. 
She did not plead her married state as a justification for her re- 
fusal ; but we knew what we might expect in a legal contest over 
the question, consequently we entered the balance on the wrong 
side of our ledger in the 'Trofit and Loss" account. 

In case of war a contract entered into between parties who 
are subjects or citizens of the conflicting countries is illegal, and 
if war be declared subsequent to the signing of the contract, its 
obligations cannot be enforced by law until after the war has 
ceased. As engineers are often interested in projects in foreign 
countries, this is a matter that needs to be borne in mind when 
preparing the contracts for such enterpr.ses. 

When a contract is entered into by an agent, care should be 
taken to make this relationship both clear and legal in the docu- 
ment by stating the name of the owner or corporation and fol- 
lowing it with the words "acting by and through Mr. X, Agent, 
Attorney, Engineer, President, or Treasurer (as the case may 
be), by virtue of the authority vested in him through power of 
attorney of the (here name the individual or company) dated 

the day of 19 — , a copy of which is hereto annexed," or 

in some similar and equally explicit manner. In this way the 
name of the real principal is made certain, the authority of the 
agent is preserved, and the possible liability of the agent as the 
principal is averted. It must be remembered that no claims or 
obligations against a principal are created by a contract entered 
into by an agent who acts without proper authority, unless the 

8 



contract be afterwards confirmed directly or indirectly by the 
principal. 

Much engineering work is being done and is to be done 
in the future by contract with the United States Government. In 
making such contracts it is important to note that although the 
Government may enter suit on its contracts for their enforce- 
ment, it cannot, without its own consent, be sued for non-compli- 
ance therewith. Instances are not unknown of repudiation of con< 
tracts by governments. Furthermore, public officers cannot 
be held personally liable for contracts signed by them in their 
official capacity. 

The names of the parties in the body of a contract should 
correspond exactly with the signatures and seals at the end, for 
a variation might prove fatal to the validity of the document. 

3rd. The preamble is a most important portion of any con- 
tract. It should explain fully all the whys and wherefores of 

the agreement and its raison d'etre. A thorough explanation of 
these would often render clear the intent of a clause in the body 
of the instrument that is otherwise ambiguous. 

Once more I am speaking from sad experience, for in an 
important but hurriedly prepared contract one of the clauses 
was not drawn with sufficient clearness, and, in consequence, 
one of the parties to the agreement tried to take an unfair ad- 
vantage of it. Had the preamble explained carefully and in de- 
tail the ultimate object of the contract and the various steps 
necessary for its accomplishment, the said party would not have 
been able to make the claim he did. 

You will be better able to judge of the importance of the 
preamble and to understand its scope after hearing read the 
specimen contracts that are to conclude this lecture. 

4th. Every contract should contain a statement of when 
or under what conditions it is to become operative. The date 
may be some particular day of month and year or immediately 
.after, or some definite time subsequent to, some act or occurrence, 
such, for instance, as the giving of written notice, or the deposit 
of a certain amount of money in a certain place, or tht com- 
pletion of a certain piece of work, or the arrival of a railroad at 
a certain point. Whatever the "condition precedent" may be, 
it should be made clear in the document beyond the peradventure 
of a doubt. 

5th. Too often in contracts nothing is said concernmg 
the duration of the agreement or of how it is to be drawn to a 
close. In some cases it would be impracticable thus to limit the 
life of the contract; but in others it is not only practicable but 

9 



also advisable, and sometimes it is imperative, especially where 
a bond for proper completion of work is involved. 

6th. The statement of what each party to the contract 
binds himself, his executors, administrators, sucessors. or 
assigns, as the case may be, to do or to refrain from doing 
should be thorough and complete in every detail. The importance 
of this is self-evident, nevertheless it is a point that is not always 
given proper attention in contract writing. 

In all contracts between corporations or between a corpora- 
tion and an individual, the promises to perform should be made 
binding upon the successors or assigns of each corporation, al- 
though it is probable that the law would enforce this even if the 
stipulation be omitted. 

In contracts where an individual is a party to the agreement 
it is best to bind not only himself but also his executors or 
assigns, unless, perchance, the obligation be of such a nature as 
to be non-transferable, as for instance, the performance of per- 
sonal duties or services of an expert nature or involving special 
skill. Thus an engineer's services are not transferable, unless 
some special provision be made and agreed to by both parties 
that, in case of his death or inability for good and sufficient 
reason to finish his work, his contract is to be assumed by some 
other engineer either named or to be determined afterwards in 
some specific way. But the death of one member of a firm of en- 
gineers will not cancel an agreement ; for as long as one of the 
original members of the firm remains in charge the contract will 
hold. In other words, it would require the death or incapacity 
of all the original members of the firm to abrogate the contract, 
unless special provision to the contrary exist in the written 
agreement. 

Construction contracts are generally assignable, unless they 
contain provision to the contrary. 

7th. The consideration which each party to an agreement 
is to give and is to recieve should be tlearly and fully stated in 
the document, otherwise unsealed contracts are liable to be held 
valueless and void in law. Moreover, the consideration must 
be real, substantial, and adequate. Some lawyers make a prac- 
tice in many cases of specifying a consideration of one dollar, 
and they even try to pass that dollar around among the several 
parties to the agreement by having each party make nominally 
that payment to each of the other parties so as to show that 
each receives a valuable ( ?) consideration. In my opinion, 
such a practice is mere humbug and unworthy of adoption by 
any man pretending to scientific attainments in his profession, no 

10 



mlatter whether that profession be law or engineering. Its 
adoption, it seems to me, is prima facie evidence of weakness in 
the document and a confession by its writer that he has failed 
to make evident the true consideration that each party is to re- 
ceive and the real reason for each party's entering into the agree- 
ment. 

There may be some excuse for passing the dollar in case of 
a parent deeding property to his child, where the true consider- 
ation is love and affection; bu> a dollar does not constitute a 
real consideration — it would be insufficient usually to pay the 
cost of typewriting the document, hence its employment is a 
fiction and a farce. 

8th. No portion of the work of contract writing requires 
greater experience and ability than the forecasting of all pos- 
sible eventualities that would materially affect the agreement 
and the proper provision for what is to be done in the case of 
each eventuality. All contracts are more or less faulty in this 
particular, for it would require omniscience to forecast all future 
happenings ; nevertheless, in preparing an important contract one 
should endeavor to foresee and provide for all possibilities and 
probabilities. The lawyer or engineer who makes a practice 
of giving this important matter full consideration in every con- 
tract that he writes will soon find himself in demand by capi- 
talists to aid them in making their investments and in consum- 
mating their enterprises. The succeeding examples of contracts 
will illustrate what I mean by the forecasting of eventualities 
and providing for them. 

9th. The matter of penalties is one that has to be handled 
with gloves, for the law is very jealous of its rights and pre- 
rogatives, and deems that it alone is authorized to specify and 
enforce a penalty, which it interprets as a punishment for failure 
to perform or comply with the terms of an agreement. On this 
account it is better not to use the term ''penalty" in any con- 
tract but to employ instead that of 'liquidated damages.'' In 
my practice I have a clause in construction specifications that 
reads as follows: 

"For each day of delay beyond the date set in the contract 
for com)pleting the entire work herein outlined, all in accord- 
ance with the plans, specifications, and directions of the En- 
gineer, the Company shall withhold permanently from the Con- 
tractor's total compensation the sum of dollars ; and 

the amount thus withheld shall not be considered as a penalty, 
but as liquidated damages, fixed and agreed to in advance by the 

11 



contracting parties as a proper compensation to the Company 
for the loss caused it by such delay." 

Liquidated damages are but seldom enforced, owing mainly 
to the characteristic good nature of engineers; for they object 
to taking advantage of a contractor who has worked faithfully 
but has been unfortunate. Again, the fact that the sympathy of 
jurors is generally with the working man and against corpora- 
tions is a reason why disputes involving the retention of money 
to compensate for delays are generally settled out of court. 

10th and 11th. In most contracts for construction and 
in some other types of contract there is no need to provide for a 
possible abrogation of the agreement, because the completion of 
the work involved is a natural cancellation; but in some other 
types, such, for instance, as partnership contracts that continue 
indefinitely, full detailed provision should be made for annul- 
ment at any time. Great care should be exercised to describe 
fully how all current business matters are to be closed and what 
compensation is to be paid to the other party or parties by the 
party who desires the said cancellation. To do this in a sat- 
isfactory manner will require business knowledge and abiHty 
of the highest order. 

12th. It is quite important in many contracts to state where 
the instrument was executed and where it is to be put in force, 
notwithstanding the fact that the residence of each party in 
case of individuals or the state of organization in case of corpor- 
ations has been described in the introductory clause of the docu- 
ment. The laws governing a contract may be determined by the 
place where the contract was made or by that in which it is per- 
formed. Wait treats this question very thoroughly on pages 
49 to 51 of his Engineering and Architectural Jurisprudence. 

13th. Methods of making payments under construction 
contracts are generally covered in the specifications, where, in 
my opinion, they properly belong, although I have on several 
occasions been adversely criticized for not putting a payment 
clause in the contract proper. In all other types of contract 
in which payments of mpney are involved, full provision should 
be arranged for the exact manner in which all payments, both 
partial and final, are to be made. This remark applies with 
special force to contracts involving engineering fees; for in 
these, if payments on acount are not arranged for, there is a 
chance that the engineers will receive no compensation at all 
until after the completion of their work, and this might be de- 
layed for an indefinite period. Our usual practice is to ask one- 
half of our fee upon the completion of the plans and specifica- 

12 



tions and the other half in monthly payments proportionate to 
the amount of contract work done on the construction, so that 
when the latter is finished wc shall have been paid in full. We 
have learned to provide also that we are to be compensated prop- 
erly for all extra expense to us due to failure to complete the 
work in the time specified. It has cost us many thousands of dol- 
lars to learn this lesson, consequently the hint that I am giving you 
ought to be valuable. 

14th. In construction contracts the subject of extra pay- 
ments also belongs in the specifications, although in many cases 
it is covered in the contract proper. Our standard clause for 
this item reads thus: 

"No extras will be allowed, unless they be ordered in writ- 
ing by the Engineer. For extras so allowed the Contractor 
will be paid the actual cost to him plus ten (10) per cent, for 
profit. Satisfactory vouchers will be required from the Con- 
tractor for all extra labor and materials." 

15th. It is a wise precaution to provide for making changes 
in every important contract. Our standard clause for this item 
is as follows: 

"No change or alteration shall be made in the terms or 
conditions of this agreement without the consent of both parties 
hereto in writing; and no claim shall be made or considered for 
any extra work, unless the same shall be authorized and directed 
in writing by the Engineer. 

16th. In construction contracts there should always be a 
clause to govern assigning the contract and sub-letting the 
work. Our standard clause for this reads thus: "The party 
of the second part hereby agrees that it will not assign or sub- 
let the work covered in this contract, or any portion of it, with- 
out the written consent of the party of the first part; but will 
keep the same within its control." 

17th. In respect to provision for settlement of disputes 
engineers are somewhat at variance. Some think that the en- 
gineer should be the sole arbiter, but I do not believe that such 
an arrangement is just, savoring, as it does, altogether too 
much of autocratic rule. I am a firm believer in arbitration for 
the settlement of all disputes on important matters, and it has 
for many years been my custom to provide in all construction 
contracts for such a method of settlement. Our standard clause 
for this matter is as follows : "The decision of the Engineer shall 
control as to the interpration of drawings and specifications dur- 
ing the execution of the work under them; but if either party 
shall consider itself aggrieved by any decision, it may require 
the dispute to be finally and conclusively settled by the decision 

13 



of three arbitrators, the first to be appointed by the party of the 
first part, the second by the party of the second part, and the 
third by the two arbitrators thus chosen. In case that the two 
first chosen fail to agree upon a third, the latter shall be ap- 
pointed by 

By the decision of these three arbitrators or that of a majority 
of them, both parties to this agreement shall be finally bound/' 
The person chosen to appoint the third arbitrator should be some 
prominent official such as the judge of a certain court, the 
mayor of a certain city, or the governor of a certain state. 

It is seldom that an arbitration clause in a contract is util- 
ized, because engineers as a rule are reasonable. Only once 
in my thirty years of practice has it been appealed to. The sub- 
ject of dispute in that case was some lumber very properly re- 
jected by my inspector as unfit for use. Unfortunately, the re- 
sult of the arbitration was adverse to my decision, owing to a 
too friendly understanding between the officers of the Company 
and the Contractor. 

Notwithstanding the fact that the contract reads that ''By 
the decision of these three arbitrators, or by that of a majority 
of them, both parties to this agreement shall be finally bound,'' 
the law has decided that the losing party has still a right to ap- 
peal to the courts ; consequently this clause of our form of con- 
tract is not binding. Although I have known this for years, I 
have made no change in the clause for the reason that at least 
nine contractors out of ten prefer arbitration to the delays, un- 
certainties, and expense that are inseparable from legal litiga- 
tion, and I have never heard of a case in which the loser by ar- 
bitration appealed to the courts. It would simplify matters if 
immediately after an arbitration is agreed upon, each party con- 
cerned were to give to the other a bond guaranteeing that he will 
abide by the decision of the arbitrators. 

18th. The bond question is a prominent feature of any con- 
struction contract and occasionally is important in other types 
of contract. My firm has finally come to the conclusion that a 
good Surety Company bond is the only kind that we shall either 
ask for or accept in future, for no other kind is so satisfactory 
to the Company or is obtained with so little difficulty by the 
Contractor. All personal bonds are obtained by favor and they 
are generally very unsatisfactory, for the solvency of the sure- 
ties is difficult to prove, and to enforce payment is still more 
difficult. Many years ago I had my first and last experience with 
a personal bond. It was when building my residence that I ac- 
cepted from the contractor a joint bond signed by three or four 

14 



persons, among them a good friend of mine. This bond was ac- 
cepted by my lawyers, nevertheless, later on when the contractor 
threw up the work I found that the only responsible man on the 
paper was my friend. As I could not press him, I waived the 
matter, and in consequence was materially out of pocket. 

There is considerable humbug in connection with sureties to 
agreements, for a slight change in contract, plans, or specifica- 
tions is often sufficient to render the bond null and void. If any- 
one doubt this statement, let him read what Wait says on pages 
13 to 17 of his Engineering and Architectural Jurisprudence, 
In my opinion, the only way to protect the Company is to insist 
upon having a bond that will permit of all necessary changes in 
plans and specifications without releasing the surety, and even 
such a bond might be voided by the law's declaring it illegal be- 
cause it departs from current practice. 

There are som,e very strange things about the law. On two 
or three occasions I have been provoked to make the statement 
that "laws are made to protect rogues against honest men," and 
truly it does seem sometimes as if such were the case. Law and 
equity are two entirely different things. The less that engineers 
have to do with the former and the more they employ the latter, 
the better it will be for all concerned. 

In adjusting disputes I am a firm believer in the principle 
of compromise, or, to put it in more homely words, in that of 
"give and take." It is nearly always practicable to bring two 
disputing parties to terms by suggesting a reasonable compro- 
mise. 

19th. If, according to a contract, the Contractor is to in- 
demnify the Comjpany against all liability or damages on account 
of accidents, it is only fair that the former should be given the 
privilege of assuming the sole defense of all lawsuits arising from 
such claims. You will see later how our standard form of con- 
tract covers this point. 

20th. The manner of defining by special clauses names used 
in the contract, such as "Engineer," "Company," etc., will be 
seen later in the various appended examples of contracts. 

21st. A contract can be dated either in the opening or in 
the final clause, or in both. In the latter case it is better not to 
repeat the date, but to insert the sentence "Dated the day, month, 
and year first herein written." 

22nd. It is important that the signatures coincide exactly 
with the names of the parties as given in the opening clause of 
the agreement, and that proper seals are attached when they are 
needed. If a party to a contract be a corporation, its corporate 

15 



seal should be used, but in the case of an individual almost any 
kind of seal will suffice — either a wafer or the word "seal" with 
a scroll drawn around it with pen and ink being commonly used. 
In the latter case it is better to write in small letters the initials 
of the signer over the word "seal." 

Let me here call your attention to an important and funda- 
mental difference between contracts with and without seals. The 
former do not need to have a consideration mentioned in them 
in order to make them valid, while the latter do require such 
mention. In former times there was far greater difference in 
the importance of sealed and parole (or unsealed) contracts than 
there is to-day; for then a sealed contract could not be modified 
without taking' many formal legal steps, while to-day it can be 
changed quite readily by a short supplementary contract, pro- 
vided there be a proper consideration mentioned therein for the 
making of the change. 

23rd. Where the party to a contract is a corporation, the 
proper witness to the Company's signature is the Secretary of the 
Company, who should use its corporate seal for attesting the doc- 
ument, but in case the party is an individual any witness will 
suffice. 

The best possible witness to signatures is a properly author- 
ized notary public ; because if any doubt be expressed concerning 
the authenticity of the said signatures, all that is necessary is to 
prove the notary's authority, which is a matter of public record, 
while for all other witnesses it is obligatory to search for them 
and either produce them in person or prove that it is impracti- 
cable to do so on account of death or departure from the coun- 
try ; and in this case it is generally required that there be brought 
forward reliable parties who will swear that the witnesses' signa- 
tures are authentic. 

In the hope that it may prove useful to you and to the read- 
ers of the pamphlet that later on will contain this lecture, I here- 
with reproduce the standard "Form for Contract" of Waddell & 
Hedrick for appending to construction specifications. 

MEMORANDUM OF AGREEMENT, Made and signed 

this . day of 19 , by and 

between the the party 

of the first part, and sometimes termed in this agreement and in 
the specifications the "Company," and 

the party of the second part, and sometimes termed in this agree- 
ment and in the specifications the "Contractor." 

WHEREAS, 

16 



NOW THIS AGREEMENT WITNESSETH. 

First. The party of the second part, for and in consideration 
of certain payments to be made to it as hereinafter specified, will 



all in accordance with the plans and specifications hereunto an- 
nexed and made a part hereof, and will fully finish and complete 

the same by unless, in 

the opinion of the Engineer, the party of the second part be de- 
layed or prevented by circumstances that are absolutely beyond 
its CDntrol. 

Second. — The party of the second part shall begin the work 
of construction as soon as practicable after the signing of the 
contract, and shall push the same to completion as rapidly as pos- 
sible and within the time limit or limits set in the accompanying 
specifications. 

Third. — All important dimensions and characteristics of the 
structures are fully described in the accompanying drawings and 
specifications, which form a part of this contract. 

Fourth. — In consideration of the performance by the party 
of the second part of its covenants and agreements, as herein- 
before set forth, the party of the first part hereby covenants and 
agrees to pay to the party of the second part as follows : 



In case that there be any other materials furnished by the 
Contractor that are not included in this list, they shall be paid for 
on the basis of actual cost to the Contractor plus ten (10) per 
cent for his profit. 

It is understood that no payments, either partial or final, are 
to be made for any material which is to be used for falsework 
or plant, but only for such material as is left permanently in the 
finished construction. 

Fifth. — The schedule prices to be adopted in making par- 
tial payments for all work as it progresses are to be as follows : 



Sixth. — All material paid for by the party of the first part 
shall be deemed to have been delivered to, and to have become 
the property of the said first party, but the party of the second 
part hereby agrees to store it and to become responsible for it 
during the continuance of this agreement. If any of it be dam- 

17 



aged, destroyed, or lost from any cause, including, among others, 
floods, washouts, and fires, the Contractor shall repair or replace 
the same at his own expense to the satisfaction of the Engineer. 

Seventh. — In case the party of the first part, notwithstanding 
the failure of the party of the second part to complete its work 
within the time specified, shall permit the said second party to 
proceed, and continue, and complete the same, as if such time 
had not lapsed, such permission shall not be deemed a waiver in 
any respect, by the first party, of any forfeiture or liability for 
damages arising from such non-completion of said work within 
the time specified, and covered by the ''Liquidated Damages" 
clause of the specifications ; but such liability shall continue in 
full force against the said second party, as if such permission had 
not been granted. 

Eighth. — No change or alteration shall be made in the terms 
or conditions of this agreement without the consent of both 
parties hereto in writing ; and no claim shall be made or consid- 
ered for any extra work, unless the same shall be authorized and 
directed in writino^ by the Engineer. 

Ninth. — In the event of any delay in completing the work 
embraced in this contract, the party of the second part shall be 
entitled to no extra compensation on account of such delay; as 
it is hereby assumed that in submitting its tender it took its 
chances for the occurrence of such delay. If, however, in the 
opinion of the Engineer, the Contractor be delayed by any act of 
the Comipany to such an extent as to cause him serious hardship, 
such as a temporary cessation of the work, the Company shall 
allow the Contractor whatever compensation for such delay as 
may appear to the Engineer to be just and equitable. 

Tenth. — The party of the second part hereby agrees that it 
will not assign or sublet the work covered in this contract, or 
any portion of it, without the written consent of the party of the 
first part ; but will keep the same within its control. 

Eleventh. — The decision of the Engineer shall control as to 
the interpretation of drawings and specifications during the exe- 
cution of the work under them ; but if either party shall consider 
itself aggrieved by any decision, it may require the dispute to be 
finally and conclusively settled by the decision of three arbitra- 
tors, the first to be appointed by the party of the first part, the 
second by the party of the second part, and the third by the two 
arbitrators thus chosen. In case that the two first chosen fail to 

agree upon a third, the latter shall be appointed by 

By the decision of these 

three arbitrators, or by that of a majority of them, both parties 
to this agreement shall be finally bound. 

18 



Twelfth. — As, according to the terms of the accompanying 
specifications, which form a part of this contract, the party of 
the second part is to indemnify the party of the first part against 
all liability or damages on account of accidents occasioned by the 
omission or negligence of itself, its agents, or its workmen dur- 
ing the continuance of this agreement, and against all claims for 
royalties on patents ; it is hereby agreed that the party of the 
second part shall be promptly and duly notified in writing by the 
party of the first part of the bringing of any such suit or suits, 
and shall be given the privilege of assuming the sole defense 
thereof. The party of the second part is to pay all judgments 
recovered by reason of accidents or patents in any suit or suits 
against the party of the first part, including all legal costs, court 
expenses, and other like expenses. 

Thirteenth. — The Contractor further agrees to give to the 
Company a^ surety-company bond, satisfactory to the party of the 

first part in the sum of 

for the faithful performance of this contract and the specifica- 
tions, and of all the terms and conditions therein contained, and 
for the prompt payment for all materials and labor used in the 
manufacture and construction of the structures, and to protect 
and save harmless the Company from claims on patents and 
from all damages to persons or property, caused by the negli- 
gence or claim of negligence of the Contractor, his agents, ser- 
vants, or employees in doing the work, or in connection therewith, 
and from injury to or loss of materials paid for by the Company 
either partially or in full before the completion and acceptance of 
the construction or con-structions. 

Fourteenth. — The word "Engineer" as used in this contract 
refers to the Consulting Engineers of the 

or their duly authorized representative. 

IN WITNESS WHEREOF, the parties to this agreement 
have hereunto set their hands and seals. 

Dated the day, month and year first herein written. 

WITNESSED BY 



The ninth item of this form, as originally written without 
qualification, has been severely criticized on more than one occa- 
sion because of alleged unfairness. ' I refer to the clause 
whieh reads *Tn the event of any delay in completing the work 

19 



embraced in this contract, the party of the second part shall be 
entitled to no extra compensation on account of such delay; as 
it is hereby assumed that in submitting its tender it took its 
chances for the occurrence of such delay/' I admit the one- 
sidedness of this clause and that if it were enforced to the letter 
by a narrow-minded or unfair engineer, it might effect a hard- 
ship upon the Contractor; nevertheless, as a matter of policy we 
still leave it in our construction contracts in order to prevent 
contractors from constantly making claims for extras on account 
of trivial delays ; but, if a delay were of such importance as to 
necessitate a partial or total shutting down of the work, we 
would certainly see that the Contractor is compensated for the 
extra expense to which he is put by stopping and re-starting con- 
struction, for in our dealings with contractors we aim always to 
act the part of "judge" and not that of partisan of the Company. 

Once in a w^hile it becomes necessary for a Cornpany to let 
work on the basis of actual cost plus a percentage for profit, and 
in this case special care has to be taken to cover all possible de- 
tails and eventualities in order to protect the Company from ex- 
tortion and needless expense. This manner of letting work is 
very favorable to the Contractor, but is troublesome and expen- 
sive for the Engineer and rather risky for the Company. . Under 
certain conditions, however, it is the only way in which the work 
can be let at any reasonable figure, such conditions, for instance, 
as govern railroad or bridge construction in a tropical country 
where fevers are prevalent and where the conditions affecting 
the cost of construction are practically unknown. My firm has 
acted as engineers on such work, and, consequently, we have 
learned by experience how contracts therefor should be prepared. 
The following is the type of contract that we would draft for 
such a case. 

Let us assume that there is a railroad being built in the 
tierra caliente of Mexico from Matamoras on the American bor- 
der through or near Tampico and Vera Cruz to the border of 
Guatemala, by an American Company organized in West Vir- 
ginia under the name of the Mexican Gulf Coastline Railway 
Company, and that it desires to let to the Central Bridge Com- 
pany of Kansas City, Missouri, the contract for building the sub- 
structures of all bridges and all the culverts on the line and for 
erecting all the superstructures, the metal for which is to be fur- 
nished and delivered at the bridge sites by the Company. Let us 
assume also that the basis of the contract is that the Contractor 
is to be paid the actual cost to him of the entire work plus fifteen 
(15) per cent for profit. 

Under such conditions we would prepare specf^cations of 

20 



our standard type, with possibly a few modifications, and would 
attach them to the following contract: 

MEMORANDUM OF AGREEMENT, Made and signed 
this fourteenth day of March, 1905, by and between the Mexican 
Gulf Coastline Railway Company, a corporation of the State of 
West Virginia, U. S. A., and having its principal business office 
in New York City, N. Y., the party of the first part, and some- 
times termed in this agreement and in the specifications the 
"Company," and the Central Bridge Company, a corporation of 
the State of Missouri, U. S. A., and having headquarters at Kan- 
sas City, Mo., the party of the second part, and somtimes termed 
in this agreement and in the specifications the ''Contractor/' 

WHEREAS, The party of the first part has already begun 
the construction of its road at several points along its line, which 
starts from the American border at Matamora-s, Mexico, and 
parallels the Gulf coast, running near the cities of Tampico, 
Tuxpan, and Vera Cruz, and extending to the border of Guate- 
mala, and 

WHEREAS, The party of the first part has already entered 
into contract with certain American firms for the manufacture of 
the metalwork for the superstructure of all the bridges required 
for its entire line, and 

WHEREAS, The party of the first part desires to let to 
some reliable American contractor the contract for building all 
the bridge piers, abutments, and culverts and for erecting all the 
superstructures of bridges on the entire line of its road, and 

WHEREAS, The party of the second part makes a specialty 
of building the substructures and superstructures of bridges, and 
has had a wide experience in this line of construction, 
NOW THIS AGREEMENT WITNESSETH: 

First. — The party of the second part, for and in considera- 
tion of certain payments to be made to it as hereinafter specified, 
will furnish all the materials for and construct complete all the 
bridge piers, abutments, and culverts, will erect and paint all the 
metalwork for the superstructure, and will furnish and put in 
place all the flooring for the bridges of the entire line of the said 
railway, all in accordance with the specifications, hereunto an- 
nexed and made a part hereof, and with the plans and directions 
of the Engineer. 

Second. — The party of the second part shall commence the 
work of construction as soon after the signing of the contract as 
it is practicable to begin, starting at as many different points 
along the line of the road as the Engineer may direct, and shall 
push the same to completion as rapidly as possible. 

21 



Third. — In consideration of the performance by the party 
of the second part of its covenants and agreements, as herein- 
before set forth, the party of the first part hereby covenants and 
agrees, for itself, its successors, and assigns, to pay to the party 
of the second part for the furnishing and completion of the en- 
tire work the actual cash cost thereof plus fifteen (15)^ per cent 
for profit. 

In computing the cost of the work, there shall be included 
all items of materials, labor, and transportation of men, materials, 
and plant to and fro, but no allowance will be made for cost of 
plant or deterioration of same, or for the time or personal ex- 
penses (other than railway and Pullman fares) of the party of 
the second part, or for interest on money required to carry on the 
work. Accident insurance for employees, insurance against loss 
of materials or plant by fire or shipwreck, and all stamps for doc- 
uments, and taxes of all kinds shall be considered items of legiti- 
mate expense, and shall be allowed for by the Engineer in the 
monthly estimates, as shall also the cost of housing the workmen, 
but not their sustenance. 

By the term "Plant" is meant all machinery and apparatus, 
new or second hand, such as engines, dredges, diving apparatus, 
pile-drivers, wire rope used for tackle, blocks, forges, riveting 
apparatus, and blacksmith's tools that are of a permanent nature ; 
but does not include such perishable materials as hemp rope, rub- 
ber hose, wheelbarrows, bolts, shovels, rubber boots, and all other 
tools and apparatus of a temporary nature. The decision of the 
Engineer shall control as to what is and what is not "Plant," and 
his decision shall be final. 

In respect to repairing plant and tools it is understood that 
all minor repairs that are done by the blacksmith and other em- 
ployees of the Contractor are to be charged to the Company, as 
are also repairs during construction to the perishable parts of 
the plant and tools, such for instance, as the timber for pile^ 
drivers, the easily broken parts of riveting machinery, and pipes 
for boring outfit; but when the work of the Contractor is fin- 
ished there will be no allowance made to him for the deteriora- 
tion of his plant, nor will he be allowed to put it into thorough 
repair at the expense of the Company just before he completes 
the entire construction. When this completion occurs all plant 
is to be the property of the Contractor, and all other apparatus 
of any value and all surplus materials are to be delivered to the 
Company as per the directions of the latter. But the Company 
reserves the right to purchase from the Contractor any of his 
plant at its actual value where it was bought less a proper allow- 

22 



ance for depreciation; and the Engineer is to be the sole arbiter 
concerning the actual value of such plant in case that the Com- 
pany and the Contractor fail to agree thereon. 

No sick or incapacitated employee shall be included on the 
Contractor's pay-roll without the written consent of the Engi- 
neer in each and every case. 

In respect to traveling expenses for employees, none shall be 
paid for the journey to the work until after the employee has 
been on the work for three (3) months; and no return expenses 
shall be allowed unless the employee has been discharged on ac- 
count of no fault of his own, or until he has worked for the Com- 
pany at least twelve (12) months. The traveling expenses al- 
lowed shall cover nothing but the railroad fare, except that in 
the case of the Contractors and their regularly salaried employees 
sleeping car charges also shall be borne by the Company. 

The men's time spent in traveling from the U. S. to their 
work is to be paid for in case they remain three (3) months or 
more continuously thereon; otherwise there will be no allowance 
for time spent in traveling. In no case will any workman be 
allowed compensation for the. time spent in returning home. No 
employee discharged for incompetency or misbehavior shall be 
allowed any return traveling expenses. 

If during the progress of the work, in the opinion of the 
Engineer, its prosecution is being delayed by reason of these re- 
strictions concerning traveling expenses, the said restrictions may 
be modified or removed altogether by the mutual consent in writ- 
ing of the two parties to this agreement, but in this manner only. 

No material is to be paid for until after it is delivered at site, 
unless the Company shall have had it in its possession for over 
thirty (30) days. 

Medical attendance and medicine at site will be paid for by 
the Company; but no other medical or hospital expenses will be 
allowed; and the Company will bear all expenses connected with 
providing boiled and filtered or condensed water for drinking 
purposes. 

The commissariat department shall be considered as a thing 
apart from this contract. The Contractor shall manage it at his 
own expense, and shall charge enough for board to reimburse 
himself for the entire outlay connected therewith and to provide 
a profit not exceeding fifteen (15) per cent. At the same time 
the Company shall insist that all employees be properly fed. The 
Company will make no charge for hauling commissiariat sup- 
plies for the Contractor over its own lines. In respect to the 
proper feeding of employees and a reasonable price for board, 

23 



the Engineer shall be the sole arbiter in case that any dispute 
arise; and to this end the Contractor's commissariat books shall 
always be open to his inspection. 

In order to keep the accounts straight, all payments made in 
Mexico for labor and materials are to be in Mexican money, but 
the Engineer's monthly estimates are to be made in American 
money, the rate of exchange to be adopted in effecting the re- 
duction being that ruling in the City of Mexico on the date of 
the Engineer's estimate. 

All bills for materials purchascci cuibide of the Republic of 
Mexico, exceeding in amount five thousand dollars ($5,000.00) 
in gold, after being approved by the Engineer, shall be sent di- 
rectly to the Company for payment; but the Contractor shall re- 
ceive his fifteen (15) per cent profxt upon them. 

Tools and other supplies may be furnished the Contractor 
by the material department of the Company, in which case the 
Contractor shall receive his fifteen (15) per cent profit on the 
wholesale cost to the Company of any materials upon which 
profit would be allowed, were they purchased elsewhere. 

The Contractor's books shall ^t all times be open to the in- 
spection of an expert accountant or accountants appointed by the 
Company to investigate the accounts. 

The methods and times for payments shall be as described 
in the accompanying specifications, which form a part of this 
contract. 

Fourth. — The number of men to be sent from the U. S. A. 
to the work and their salaries or wages shall be subject to the 
approval of the Engineer, and he shall be satisfied as to their fit- 
ness before they are engaged. The number of men to be em- 
ployed at each site shall also be subject to the Engineer's ap- 
pro /al. He may order that the number be increased if, in his 
opinion, there are not enough, or that it be decreased, if it be too 
great for economic working. 

The Contractor shall purchase 'plant and materials in ad- 
vance of thei requirements, so as to have no idle men on the 
work. In case that he fail to do so, the Engineer shall have the 
right to prevent the Company from loss of money because of such 
negligence, by making an equitable reduction in the monthly 
payments. 

The Engineer shall approve the purchase of all materials 
obtained outside of the Republic of Mexico and all important 
purchases of materials in same. The decision as to what pur- 
chases are important and what are not shall rest with the En- 
gineer. 

24 



All expense bills are to be properly vouchered in triplicate 
before being presented to the Engineer for his approval, and none 
shall be honored by the Company without his approval. The En- 
gineer shall attach one set of vouchers to his monthly estimates, 
shall keep, another set for his own records, and shall return the 
third to the Contractors. 

All pay-rolls are to be signed by the payees in the presence 
of the Engineer or one of his duly authorized representatives; 
and when they are complete they shall be copied in duplicate in 
typewriting and the copies shall be attested by a notary. One 
attested copy is to be attached to the monthly estimate, the other 
is to be retained by the Engineer, and the original is to remain 
the property of the Contractor. In case of employees unable to 
write, the paymaster shall attach to the pay-roll an affidavit cer- 
tifying that all the men on the said pay-roll have been paid in full. 
The Company is not to be held liable for the failure of the 
Contractor to comiply with any of the Mexican laws, especially 
those relating to books, accounts, and stamping of documents. 

Before the plant is shipped to the site of the work it must 
be approved in writing by the Engineer; and the Contractor shall • 
provide in advance whatever plant the Engineer may deem nec- 
essary for a satisfactory prosecution of the work, including sev- 
eral complete outfits for pneumatic riveting. 

Fifth. — All material paid for by the party of the first part 
shall be deemed to have been delivered to and to have become the 
property of the said first party; but the party of the second part 
hereby agrees to store it and to become responsible for it during 
the continuance of this agreement or until it has been placed in 
the work and accepted by the Engineer. If it be possible, all ma- 
terials that are liable to injury by fire are to be insured to as near 
their full value at the place where stored as is practicable. In 
case that the Contractor fail so to insure and an}^ of the Com- 
pany's property that is in his charge be injured or destroyed, it 
shall be repaired or replaced according to the directions of the 
Engineer, and the cost of such repairs or replacements shall be 
deducted by the Engineer from the Contractor's monthly esti- 
mates. In case it be impossible to insure the said materials, the 
Company will stand the cost of all loss by fire, provided that, in 
the opinion of the Engineer, the Contractor used due diligence 
in caring for the materials so injured or destroyed; but the Com- 
pany shall in no way be liable for injury to or loss of materials 
by water, flood, theft, or maliciousness. 

• Sixth.— The party of the first part shall secure to the party 
of the second part the right to enter upon the places to be occu- 

25 



pied by the structures and by the materials thereof during con- 
struction, free from cost, damage, or claim for damage of any 
kind whatever. 

Seventh. — No change or alteration shall be made in the 
terms or conditions of this agreement without the written con- 
sent of both parties hereto. 

Eighth. — The party of the second part hereby agrees that it 
will not assign or sublet the work covered in this contract or any 
portion of it, without the previous written Consent of the party 
of the first part; but will keep the same within its control. It 
will not be the policy of the Company to permit any sub-letting 
by the Contractor, because its principal object in letting this con- 
tract for cost plus a percentage for profit is to avail itself of the 
said Contractor's experience, constructive skill, and ability to 
handle men and work. 

Ninth. — If the Engineer should find occasion to reject and 
insist upon the removal and replacement of any portion of the 
completed or partially completed work, and if, in his opinion, 
the Contractor is to blame for the defects, the cost of such re- 
moval and replacement is to be deducted by the Engineer from 
the Contractor's monthly estimates. 

Tenth. — If during construction it appear to the Engineer that 
the Contractor is not making proper progress on account of in- 
sufficient plant, labor, materials, supplies, or energy, the Com- 
pany shall give the Contractor notice in writing that it is not sat- 
isfied with the progress that is being made, explain its conception 
of the reasons for the delay, and suggest remedies therefor. Then 
if, after the expiration of twenty (20) days, the Engineer reports 
that the Contractor has not taken the steps indicated by the Com- 
pany as necessary for a satisfactory prosecution of the work or 
other steps which, in the opinion of the Engineer, will prove 
equally effective, the Company shall have the right, after giving 
the Contractor a further twenty (20) days' notice in writing, to 
undertake itself, either by administration, or by letting the con- 
tract to other parties, the completion of the said work which is 
thus being neglected. 

Under these circumstances the Company shall have the right 
to enter upon and take possession of the plant, tools, materials, 
and supplies of the said Contractor, or any part thereof; and in 
such case the Contractor shall be allowed a fair price for the 
use of all plant returned, and compensation in full for any por- 
tion thereof used up or expended on the work. 

This provision shall apply to the entire work involved in the 
contract as well as to any portion of it; which means in effect 

26 



that if, in the opinion of the Engineer, the Contractor does not 
make a practice of prosecuting his work with due diligence, thor- 
oughness, or economy, the Company shall have the right to finish 
the said work in the manner provided in this clause of the agree- 
ment. 

Eleventh. — The decision of the Engineer shall control, etc., 
etc. (This clause is taken without change from Waddell and 
Hedrick^s standard form previously quoted). 

Twelfth. — (This also is from our standard form and covers 
the question of defense of lawsuits.) 

Thirteenth. — Whenever the reserve of ten (10) per cent of 
the monthly estimates, provided for in the contract, amounts to 
fifty thousand dollars ($50,000.00) the Company shall pay to 
the Contractor twenty-five thousand dollars ($25,000.00) on ac- 
count, so that at all times after the first quarter million dollars' 
worth of construction is allowed for in the estimates, there shall 
be a reserve in the Company's hands varying in amount between 
twenty-five thousand (25,000) and fifty thousand (50,000) dollars. 

Fourteenth. — The Contractor further agrees to give to the 
Company a good and satisfactory surety-company bond in the 
sum of fifty thousand dollars ($50,000.00) gold for the faithful 
performance of this contract according to the specifications, and 
for the prompt payment for all material and labor used on the 
work, and to protect and save harmless the Company from all 
damages to persons or property caused by the negligence, or 
claim/ of negligence, of the Contractor, or his agents, servants, or 
employees in doing the said work or in connection therewith, 
the form of the said bond to be satisfactory to the Company. In 
case though, on account of the construction being done in a for- 
eign country, there be experienced special difficulty or expense 
in obtaining a satisfactory surety-company bond, the Contractor 
shall deposit with some Trust Company of New York City, to 
be named by the party of the first part, securities to the full 
value of fifty thousand dollars ($50,000.00) as a guarantee in- 
stead of the aforesaid bond, which securities shall be satisfactory 
to the party of the first part. Whatever surety be decided upon, 
it shall continue in full force during the existence of this con- 
tract; and it shall not be waived or voided by any change in the 
plans, specifications, or amount of work involved, nor by any 
change in the' contract itself that, in the opinion of three arbitra- 
tors, (one appointed by the surety-company, one by the party of 
the first part, and the third by the two arbitrators thus chosen), 
is not in equity a good and sufficient cause for the cancellation 
of the surety. All these conditions will have to be agreed to in 
advance by the proposed surety company, or else its surety will 

27 



not be considered by the party of the first part; and in case of a 
cash or equivalent guarantee, the party depositing the same will 
have to agree to the said conditions. 

Fifteenth. — In case of any arbitration, if the two arbitrators 
first chosen refuse or fail to decide upon a third, the latter shall 
be appointed by the Mayor of New York City. 

Sixteenth. — The word "Engineer' as used in this contract 
refers to the Consulting Engineers of the Mexican Gulf Coast- 
line Railway Company or their duly authorized representatives. 

Seventeenth. — Either party to this agreement shall at any 
time have the right to make this contract a public contract ac- 
cording to the laws of the Republic of Mexico. 

Eighteenth. — In case that at any time the Company decides 
to discontinue either temporarily or permanently the construction 
of its railroad or bridges, it shall have the right either to order 
the Contractor to cease operations until further notice or to can- 
cel the contract. In the first case the Company shall pay all the 
expenses for closing down, storing, and taking care of the plant, 
and starting work again, also what, in the opinion of the Engi- 
neer, is a proper allowance for interest on cost of plant while it is 
out of use, together with fifteen (15) per cent on these amounts 
for profit ; and in the second case the Contractor is to be paid in 
full for all work done and materials furnished up to the date of 
cessation besides the entire cost of transporting the men and 
plant back to Kansas City, U. S. A., with the usual fifteen (15) 
per cent added for profit. 

IN WITNESS WHEREOF, the parties to this agreement 
have, in the City of New York, hereunto set their hands and 
seals. 

Dated the day, month and year first herein written. 
Attest. 



The Mexican Gulf Coastline Railway 
Company. 



Secretary of the M.exica-n Gulf Coast- 
line Railway Company. By 

[Seal] President. 



Secretary of the Central Bridge Com- The Central Bridge Company. 

pany. 



[Seal] 



By 

President. 



You may have noticed that while this contract contains many 
clauses that are not included in the ordinary type of construction 
contract, the latter has certain provisions that do not exist in the 
former, notably a clause for ''liquidated damages/' The reason 

28 



for this omission is that under the assumed conditions it was im- 
possible to set any dates for the completion of the various struct- 
ures or of the entire work involved, hence no penalty could be 
demanded. 

I desire to call your attention to a feature of this method of 
letting work on a percentage basis that is, perhaps, foreign to 
the subject of the lecture, viz., the unusually large amount of 
labor that it involves for the engineers, who, in addition to their 
ordinary duties, have practically to assume the functions of ad- 
ministrators. For this reason their fees on such work should be 
greater than on ordinary contract construction. 

As it is my intention to send to each of you later a copy of 
this lecture, I am going to ask that you study the preceding con- 
tract carefully and check it against the list of requirements that 
I have given for scientific contract-writing, in order to see wheth- 
er anything of importance has been omitted and how thoroughly 
the document has been prepared. This suggestion will apply 
also to all the succeeding examples of contracts. Such a study 
will do far more to teach you how to prepare proper contracts 
than would the listening to twenty lectures. You could, if you 
so desire, carry the study still further by assuming all the condi- 
tions precedent for some other type of contract, then prepare 
the document so as to embody in it all the principles and impor- 
tant features that I am advocating. On account of your inex- 
perience in the business features of engineering, your produc- 
tions would naturally be somewhat crude, but the benefit to your- 
selves from the prepartion of such essays would be very great, 
especially if you were to submit them for criticism to some good 
legal authority. 

Contracts looking to the development of large enterprises 
are not uncommon, but the attendant conditions are generally 
rather vague and uncertain ; hence the drafting of a proper agree- 
ment between the various parties concerned is quite a difficult 
matter. 

Let us assume that there is a project on foot to build in Col- 
orado a large dam across Lonetree Gulch for the double purpose 
of irrigating the lands below the site and of developing elec- 
tric power to be transmitted to Denver; and that a company 
named the Lonetree Gulch Development Company has been duly 
organized • under the laws of the State of Colorado by John 
Smith and Arthur Jones, real estate brokers of Denver, for the 
purpose of consummating the enterprise. Let us assume also 
that these men in doing the preliminary work necessary to secure 
the charter, after spending four thousand dollars ($4,000.00), 

29 



have exhausted all of their resources, and that, in order to bring 
the project into proper shape to present to financiers, consider- 
able expensive engineering work is essential. On this account 
they have gone to Wallace and Henderson, Consulting Engineers 
of Kansas City, Mo., who make a specialty of engineering large 
enterprises, and requested their assistance. These engineers have 
called in Green and Robinson, electrical engineers, also of Kan- 
sas City, Davidson and Osgood, masonry contractors of Chicago, 
and Holman and Curtis, grading contractors, of Denver; to 
share with them the expense of doing all the preliminary work, 
which they estimate will cost six thousand dollars in actual cash 
with no allowance for personal engineering services. 

The original promoters have agreed to deliver to the engi- 
neering and contracting firms eighty (80) per cent of their entire 
holdings in the enterprise, in compensation for the engineering 
work necessary to prepare a presentation of the scheme so thor- 
oughly drawn that it will receive due consideration from capital- 
ists. The two contracting firms have agreed to subscribe six 
thousand dollars ($6,000.00) each to the general fund. The two 
engineering firms are to receive three thousand dollars ($3,000.- 
00) each as compensation in full for their cash outlay, and are to 
devote their time and attention to the preliminary work contin- 
uously till its completion. 

It is understood that the Lonetree Gulch Development Com- 
pany has organized and has held sufficient meetings to enable it 
to secure from the State of Colorado the charter for construct- 
ing the dam, irrigation system, and power plant, but that no 
stock has been issued, only enough, having been subscribed for 
to qualify the board of directors. The promoters value their 
charter and the recorded results of the work that they have done 
at fifteen thousand dollars ($15,000.00), but are willing to dis- 
pose of eighty (80) per cent of their entire holdings for a pre- 
liminary cash payment of four thousand dollars ($4,000.00), and 
eight thousand dollars ($8,000.00) to be paid to them by the two 
contracting firms and the two engineering firms jointly immedi- 
ately after the enterprise is financed and compensation for their 
past and future work is assured. 

It is understood also that, as the Lonetree Gulch Develop- 
ment Company's charter will expire in about six (6) months, 
the original promoters are to have its privileges extended by the 
State Legislature for another three years, and that this must be 
done before the first payment of four thousand dollars ($4,000.00) 
on account will be made by the purchasers. 

30 



The eighty (80) per cent of their holdings that the promo- 
ters sell is to be divided equally among the four buyers, so that 
each engineering company, each contracting company, and the 
original promoting company shall hold twenty (20) per cent of 
the capital stock when it is distributed, which will be after the 
preliminary engineering work is done and before the financiers 
are approached. 

After paying the promoters four thousand dollars ($4,000.- 
00) on account and the engineers six thousand dollars ($6,000.00) 
to reimburse them for their cash expenditures, there will be left 
two thousand dollars ($2,000.00) out of the twelve thousand 
dollars ($12,000.00) subscribed by the two contractors. This 
balance is to be held by the Consulting Engineers to defray trav- 
eling and other expenses incident to the financing of the project 
after the preliminary engineering work and estimates are com- 
pleted. 

It is further understood that the bargain made ' with the 
financiers is to be conditioned on Wallace and Henderson being 
retained as principal engineers of the enterprise, with Green and 
Robinson as consulting electrical engineers, and that the total 
compensation for engineering is to be not less than five (5) per 
cent of the entire cost of the work, including right-of-way aud 
all other expenses connected with the consummation of the en- 
terprise and completion of the construction, which fee is to be 
divided between the two firms in the ratio of the contract prices 
of the portions of the construction under their respective juris- 
dictions. It is also conditioned on the understanding that the 
contract for the masonry dam and for the construction required 
for power development and transmission is to be given to David- 
son and Osgood, and that for the irrigation works and any other 
construction that there may be to Holman and Curtis, at sched- 
ule rates determined by the Consulting Engineers on the basis of 
estimated actual cost plus twenty (20) per cent for profit. 

It is understood that in dealing with the financiers, the lattei 
will demand a large portion of the capital stock, and that the ex- 
act amount thereof which they are to receive will be settled by 
mutual agreement between the financiers on one side and the 
five interested parties on the other, and that the decision of a ma- 
jority of the five in respect to this and all other matters in con- 
troversy shall govern. After the amount of stock to be relin- 
quished is determined, each of the fiv- equal holders of the entire 
stock shall relinquish the percenia-e of his holdings that has been 
agreed upon. 

Under the preceding: circumstances and conditions the fol- 

31 



lowing is the draft of contract that I would make to define and 
secure the interests of all concerned and to prevent, if possible, 
the financiers from taking more of the cream of the enterprise 
than the amount to which they are justly entitled. 

MEMORANDUM OP AGREEMENT, Made and signed 
this twentieth day of March, 1905, by and between John Smith 
and Arthur Jones, the party of the first part and sometimes 
termed herein the ''Incorporators,'' real estate brokers of Denver, 
Colo., and sole owners of the stock in the Lonetree Gulch De- 
velopment Company, a corporation of the State of Colorado; 
and the firm of Wallace and Henderson, Consulting Engineers, 
of Kansas City, Mo., the party of the second part, and sometimes 
termed herein the ''Consulting Engineers ;'' and the firm of Green 
and Robinson, electrical engineers, of Kansas City, Mo., the 
party of the third part ,and sometimes termed herein the "Elec- 
trical Engineers ;" and the firm of Davidson and Osgood, ma- 
sonry contractors, of Chicago, 111., the party of the fourth part, 
and sometimes termed herein the ''Masonry Contractors ;" and 
the firm of Holman and Curtis, grading contractors, of Denver, 
Colo., the party of the fifth part, and sometimes termed herein 
the "Grading Contractors." 

The four firms, viz., Wallace and Henderson, Green and 
Robinson, Davidson and Osgood, and Holman and Curtis, re- 
spectively the second, third, fourth, and fifth parties to this agree- 
ment, are sometimes hereinafter termed the "Purchasers," the 
five parties to the contract are hereinafter sometimes termed col- 
lectively the "Syndicate,'' and the financiers who will later be 
requested to subscribe the money for the construction will be 
termed for convenience the "Bankers." 

WHEREAS, The party of the first part as incorporators and 
sole stock-owners of the Lonetree Gulch Development Company 
has obtained from the State of Colorado a charter permitting it 
to build a dam across Lonetree Gulch at a point to be selected by 
its engineers for the purpose of irrigating certain lands and de- 
veloping and transmitting power, and 

WHEREAS, The party of the first part has spent in cash 
some four thousand dollars ($4,000.00) on preliminary surveys 
and borings, and 

WHEREAS, The party of the first part recognizes the fact 
that, in order so to present its project to capitalists as to induce 
them to subscribe for the bonds of the Company, it is necessary 
to do considerable expensive engineering work and to prepare 
from the results of it preliminary plans, specifications, estimates 
of cost, estimates of revenue, and other papers ; and has in con- 

32 



sequence approached the party of the second part with the sug- 
gestion that it form a combination to buy a controlHng interest 
in the company and to do all the said preliminary engineering 
work and finance the project, and 

WHEREAS, The party of the second part, not being ex- 
pert in electrical engineering, has decided to take in with it the 
party of the third part to do all the engineering on the power 
development, and 

WHEREAS, The engineers, not having the necessary cash 
to spare for the development of the enterprise, have called in the 
parties of the fourth and fifth parts to take a share of it in con- 
sideration of their furnishing the money required for the prelim- 
inary expenses, and 

WHEREAS, The parties of the second and third parts de- 
sire to secure the entire engineering work involved in the con- 
struction of the dam and irrigation plant, and in the development 
of the power, and 

WHERAS, The parties of the fourth and fifth parts desire 
to secure the contracts for building the dam, irrigation plant, and 
all the machinery, houses, and other constructions for power de- 
velopment, 
NOW THIS AGREEMENT WITNESSETH: 

First. — The party of the first part hereby agrees, for a con- 
sideration hereinafter mentioned, to transfer to the parties of the 
second, third, fourth and fifth parts, jointly, eighty (80) per 
cent of its entire holdings in the said project, including the before 
mentioned charter from the State of Colorado, and all the plans, 
notes of surveys, and estimates made to date by or for the .party 
of the first part, in order that the Purchasers may use them in 
their work of completing the plans, estimates, and other docu- 
ments to present to financiers. 

Second. — As payment for the said eighty (80) per cent "of 
the Incorporators' holdings the Purchasers agree as follows: 

A. To pay to the Incorporators the sum of twelve thous- 
and dollars ($12,000.00), four thousand dollars ($4,000.00) 
thereof within thirty (30) days after the extension of the char- 
ter for another three (3) years has been granted by the State of 
Colorado, and the remaining eight thousand dollars ($8,000.00) 
within thirty (30) days after the entire project has been financed, 
the capital secured, and the Purchasers assured of their con- 
tracts for the engineering and construction of the entire work 
by payment to them from the Bankers of not less than twenty 
thousand dollars ($20,000.00) on account. 

B. To do at their own expense all the preliminary engi- 

33 



neering work required for putting the project in proper condi- 
tion to present to capitalists; including surveys for the dam, 
irrigating ditches, and transmission line for power; borings for 
the foundations of the dam ; plans and specifications for the dam, 
irrigation system, and power development and transmission; a 
complete detailed estimate of cost of the entire enterprise, includ- 
ing right-of-way, land, construction, machinery, legal fees, ad- 
ministration, and engineering; a complete and detailed estimate 
of probable earnings ; and an exhaustive and well drafted pros- 
pectus. 

C. To do their best (with the aid of the Incorporators) 
to finance the project and to secure bonuses and other aid from 
the U. S. and State Governments and from individuals who 
would be directly benefited by the consummation of the enter- 
prise; and thus by the united efforts of the entire Syndicate 
to secure the necessary money to build the said dam, irrigation 
system, and power plant. 

Third. — The parties of the second and third parts, in con- 
sideration of certain remuneration hereinafter mentioned, here- 
by agree to do at their own expense all of the before-mentioned 
preliminary engineering work, including the making of all sur- 
veys, borings, plans, and estimates, and the preparation of the 
prospectus; and to give to the said work their undivided atten- 
tion and the full benefit of their experience and professional 
skill. They also agree to finish in the shortest practicable time 
consistent with thoroughness the entire work previously de- 
scribed. 

Fourth. — The parties of the fourth and fifth parts hereby 
agree to deposit in the hands of the party of the second part six 
thousand dollars ($6,000.00) each so as to form a working cap- 
ital of twelve thousand dollars ($12,000.00), which capital will 
hereinafter be termed the "Purchasers' Fund." This fund is 
to be utilized in making the first payrnent of four thousand dol- 
lars ($4,000.00) on account to the Incorporators, paying for the 
preliminary engineering work, and presenting the fully prepared 
project to the Bankers. 

Fifth. — The parties of the second and tbird parts are to be 
paid out of the Purchasers' Fund the sum of six thousand dol- 
lars ($6,000.00), to be divided equally between them as compen- 
sation for their cash outlay in connection with the preliminary 
engineering work described previously; and this amount is to 
be paid to them as soon as they deliver to the Syndicate the com- 
plete papers for submission to the Bankers. 

Sixth. — As soon as the preliminary engineering work is 

34 



finished and the various papers depending upon it are prepared, 
a copy of each of the said papers shall be delivered to each mem- 
ber of the Syndicate, and within ten (10) days from the date 
of such delivery the Incorporators shall issu^ and distribute to 
the Purchasers their eighty (80) per cent of the capital stock 
of the Lonetree Gulch Development Company. The amount of 
stock thus delivered to the Purchasers shall immediately be dis- 
tributed equally among the four firms of which the said Pur- 
chasers are composed. 

Seventh. — The two thousand dollars ($2,000.00) remaining 
in the Purchasers' Fund after the Promoters and the Engineers 
are paid is to be used in presenting the project to the Bankers; 
and in case that it be insufficient for the purpose, each member of 
the Syndicate will be required to contribute to the said fund 
from time to time a certain small sum of money to be determined 
by the Consulting Engineers as requisite for the purpose. 

Eighth. — When the Syndicate is making its bargain with 
the Bankers for the development of the project, it will be neces- 
sary to turn over to them a portion of the capital stock of the 
Company, which portion the Syndicate will naturally strive to 
make as small as possible. Each of the five parties to this agree- 
ment shall turn over to the said Bankers the portion of his total 
stock agreed upon, thus leaving the said five members equal 
owners of the balance of the said capital stock. 

This entire balance of stock is to be deposited with a Trus- 
tee, selected by a majority vote of the five members of the Syn- 
dicate, to be held by hi'm until the completion of the entire con- 
struction of the dam, irrigation system, and power plant. Should, 
however, as hereinafter provided for, any member of the Syn- 
dicate be expelled by a majority vote of that body, the Trustee 
shall transfer on his books, as directed by the Syndicate, the 
stock of the said expelled member. As soon as the said construc- 
tion has been completed and the acounts of the Syndicate have 
been finally settled, but not before, the Trustee shall deliver to 
the owners thereof the stock standing in their names on the 
books. 

In case of any disagreement between the members of the Syn- 
dicate concerning the proportion of the total stock to be relin- 
quished to the Bankers or concerning any other matter not spe- 
cially covered herein, a majority vote of the said members of the 
Syndicate shall rule, and there shall be no appeal from any for- 
mal decision of the majority of the said Syndicate. 

Ninth. — When the Syndicate makes its bargain with the 
Bankers, its members shall stand firm for the following basis of 

35 



agreement, and no modification whatsoever shall be made in the 
terms thereof without the unanimous consent in writing of all 
five members of the said Syndicate. 

A. The party of the second part is to be retained to do 
the entire engineering work in connection with the designing 
and construction of the dam and irrigation system. 

B. The party of the third part is to be retained to do the 
entire engineering work in connection with the designing and 
construction of the power plant and the power transmission 
line. 

C. The compensation of the engineers for the work that 
they do after the project has been financed shall not be less 
than five (5) per cent, of the entire cost of the enterprise (bar- 
ring, of course, the cost of the engineering itself) ; and they 
shall divide the total fee between them in the proportion that 
the contract cost of the work done under each one's charge 
bears to the total contract cost of the entire work. 

D. The party of the fourth part is to be given the con- 
tract for building the dam, power plant, and transmission line 
at schedule rates figured by the Consulting Engineers on the 
basis of actual cash cost plus twenty (20) per cent, for profit. 

E. The party of the fifth part is to be given the contract 
for constructing the irrigation system and any other construc- 
tion there may be besides that herein mentioned, at schedule 
rates figured by the Consulting Engineers on the basis of actual 
cash cost plus twenty (20) per cent, for profit. 

F. In case that either the Bankers or the Contractors fail 
to approve the Consulting Engineers' figures for the schedule 
prices, the dispute is to be settled by arbitration, one arbitrator 
being appointed by each of the two disputants and the third by 
the two thus chosen. In case that the said two fail to agree upon 
a third arbitrator, the latter is to be appointed by the Governor 
of the State of Colorado. By the decision of a majority of these 
three arbitrators the said schedule rates are to be finally deter- 
mined. 

G. In case that the Bankers decide that the construction 
is to be done by some other organization than the Lonetree 
Gulch Development Company, the members of the Syndicate are 
to receive free of charge the same percentages of stock in the 
new organization as it was agreed upon that they were to retain 
finally in the original company. 

Tenth. — The entire agreement is based upon the assumption 
that the Legislature of the State of Colorado will grant to the 
Lonetree Gulch Development Company, its successors or as- 

36 



signs, an extension of time of three (3) years for starting work 
upon the construction and the same amount for the completion 
thereof. If the said extension of time be refused by the Legis- 
lature, this agreement is to become null and void. 

Eleventh. — If in the future it be found necessary to obtain 
from the Colorado Legislature any further extension or exten- 
sions of time for either starting or finishing the construction, 
or for both, the Purchasers and the Incorporators hereby agree 
to use their best united efforts to secure such extension or ex- 
tensions; and any expense incurred in obtaining such extension 
or extensions shall be borne equally by the five parties to this 
agreement. 

Twelfth. — The obligations and benefits of this agreement are 
to be binding upon and to accrue to not only the various parties 
to this agreement but also their executors, administrators, suc- 
cessors, or assigns, as the case may be. 

Thirteenth. — This agreement shall continue in existence either 
until the entire project is consummated, or until the charter of 
the Company lapses because of failure to have it extended. 

Fourteenth. — In case that the Syndicate and the Bankers 
come to terms and the construction proceeds, the parties of the 
second and third parts hereby agree to devote to the engineering 
work their full time and best attention, and to give to it the benefit 
of their experience and skill; and the parties of the fourth and 
fifth parts hereby agree to do all the contracting work in a thor- 
ough and workmanlike manner and in strict accordance with the 
plans, specifications, and instructions of the engineers; all for 
the purpose of ensuring that the entire construction shall be 
first-class in every particular and a credit to everybody con- 
cerned in its designing and building. 

Fifteenth. — All the members of the Syndicate hereby pledge 
themselves that they will in all cases try to act in harmony and 
to do all they can to develop the project and accomplish the 
aims for which the Syndicate was formed and which this docu- 
ment expounds. 

Sixteenth. — In case that any- party of the Syndicate fails to 
keep the agreements into which it has entered in this document, 
it shall be given written notice by a majority of the said Syn- 
dicate to the effect that it is not acting in a manner which will 
redound to the best interests of the Syndicate, and that if it does 
not modify satisfactorily to the Syndicate its objectionable ac- 
tions within twenty (20) days, it will be expelled from the said 
Syndicate. 

In this case the Syndicate will choose a successor and will sell 

37 



to him for as large a sum of money as possible the entire holdings 
of the expelled party, including the stock deposited in the Trus- 
tee's hands, if any be then so deposited, and will deliver to the 
said expelled party the said sum of money, less the amount re- 
quired to settle the expelled party's indebtedness to the Syndi- 
cate as a body and to its individual members, and to square all 
accounts of the said expelled party in connection with its work 
that is covered in this agreement. If the price at which the said 
stock is to be sold be unsatisfactory to the expelled party, the lat- 
ter shall have the privilege of trying for the space of thirty 
(30) days to obtain a better price; and if the said expelled party 
secure a better price, the Syndicate shall either buy the stock 
at that price or allow the expelled party to sell it. 

Seventeenth. — No change or alteration shall be made in the 
terms or conditions of this agreement without the consent of all 
five (5) parties hereto in writing. 

Eighteenth. The parties to this agreement hereby agree that 
they will neither sub-let any of the work herein described nor 
sell any portion of their interests without the consent of all five 
(5) parties hereto in writing. 

IN WITNESS WHEREOF, the parties to this agreement 
have hereunto set their hands and seals at the City of Denver, 
Colo. Dated the day, month, and year first herein written. 
Witnessed by 

(Seal) 

(Seal) 

...(Seal) 

(Seal) 

(Seal) 

The preceding contract is a very complicated document, pos- 
sibly as complicated as any of you are ever likely to be required 
to draft. It has been written with care and has been checked 
by competent authority, hence it ought to serve well as a model 
for drafting agreements between several parties. 

The next type of contract that I shall present is one between 
the promoters of an enterprise and capitalists whose aid they 
are seeking to finance it. 

Let us assume that the same firm of engineers, viz., Wal- 
lace and Henderson of Kansas City, Mo., has developed the pro- 
ject for building a toll bridge over the Arkansas River and an 
electric railway between the cities of Van Buren and Fort 
Smith, and has formed in Arkansas a company named the Van 
Buren and Fbrt Smith Bridge and Railway Company to build 
the proposed line and structure; also that it has obtained a 

38 



charter from the U. S. Government for bridging the river and 
franchises from the two cities for the construction of the electric 
railway; also that all steps thus far have been taken in a per- 
fectly legal manner, and that the Company's books and records 
are in proper shape. Only enough stock has been subscribed to 
qualify the directors, and the entire stock is thus far controlled 
by the firm of engineers. 

It is assumed also that these engineers have taken the project 
to a firm of brokers, Raymond and Effingham of Philadelphia, 
who are themselves capitalists, but who are not strong enough 
financially to underwrite the entire issue of bonds, the amount 
of cash required for the enterprise being in the neighborhood of 
eight hundred thousand dollars ($800,000.00). 

Under these conditions the contract that I would draft is as 
follows : 

MEMORANDUM OF AGREEMENT, 

by and between A. J. Wallace and G. I. Henderson, Consulting 
Enginers, both of Kansas City, Missouri, and co-partners doing 
business under the firm name of Wallace and Henderson, the 
party of the first part, and sometimes hereinafter termed the 
"Promoters,'' and P. J. Raymond and S. L. Effingham, both of 
Philadelphia, Pennsylvania, co-partners doing business under 
the firm name of Raymond and Effingham, the party of the sec- 
ond part, and sometimes hereinafter termed the "Brokers." 

WHEREAS, The said Wallace and Henderson have pre- 
pared complete in every essential particular a project for build- 
ing an electric railway between Van Buren and Fort Smith in 
the State of Arkansas, with a toll bridge for vehicular and elec- 
tric railway traffic to cross the Arkansas River on the line of the 
said railway, and have organized in the State of Arkansas a 
company for building the said railway and bridge, and have taken 
the said project to the said Raymond and Effingham to finance 
with a resulting mutual benefit to both parties, now, therefore, 
THIS AGREEMENT WITNESSETH: 

First. — The incorporated name of the Company for building 
the electric railway and bridge is the Van Buren and Fort Smith 
Bridge and Railway Company, and the entire stock thereof is 
now owned and controlled by the party of the first part. 

Second. — The party of the first part hereby agrees to place 
in the hands of the party of the second part, and in its hands 
only, the financing of its project to build the said electric rail- 
way and bridge. 

Third. — The party of the second part hereby agrees to use 
its best efforts to effect the underwriting of the bonds of the 

39 



said Company, and in every way to endeavor to finance the 
project with the least possible delay. 

Fourth. — The parties hereto hereby agree to divide equally 
between them all profits resulting from the disposal of the Com- 
pany's securities. 

Fifth.— The duration of this contract shall be six (6) months 
from the date of its signature, but its life may be extended by 
the consent of both parties hereto in writing. 

Sixth. — The amount of bonds to be sold for developing the 
project shall be one million dollars, and the Brokers in disposing 
of them are to obtain as high a price as possible, under no 
circumstances parting with them for less than eighty-five (85) 
cents on the dollar. 

Seventh. — In dealing with the bankers and underwriters, 
the Brokers are to keep as low as possible the percentage of the 
capital stock of the Company that is given with the bonds; and 
under no circumstances shall the amount so given, hypothe- 
cated, or pledged be so large as to cause the control of the 
enterprise to pass out of the hands of the parties of the first 
and second parts. 

Whatever stock is left over after the arrangement with the 
bankers and underwriters is consummated is to be divided equally 
between the two parties to this agreement. 

In case that the Brokers in making the sale of the bonds find 
it necessary to part with more than forty (40) per cent, of the 
capital stock, they shall not finally agree to do so until after 
they have received in writing the assent of the Promoters to 
the proposed arrangement. 

Eighth. — It is not contemplated that either Wallace and Hen- 
derson or Raymond and Effingham will be underwriters for the 
bonds, but either of them may subscribe, if they so desire, and 
they shall receive with the bonds they buy the proportion of 
stock set apart to go to the underwriters, the same as if they 
were in no other way connected with the project, and in addi-* 
tion to and entirely apart from any profits to be divided under 
this agreement. 

Ninth. — The Brokers hereby agree that in any financial ar- 
rangement entered into by them they will see that there is pro- 
vision made by which the party of the first part shall be retained 
as engineers of the Company to design and supervise the con- 
struction of the railway and bridge with full control over all 
matters of an engineering character, and that they shall receive 
in compensation for their services and for those of their assist- 
ants a gross fee of not less than five (5) per cent, of the grand 

40 



total cost of the railway and bridge, excluding from the said 
total only the Engineers' and the Brokers' fees. 

In the same manner the Promoters agree, in so far as it 
is within their control, to see that Raymond and Effingham re- 
ceive for their services in financing the project a gross fee of 
three (3) per cent, of the said grand total cost, computed as 
just described. 

It is distinctly understood, however, that neither party here- 
to is assuming individual or personal Hability to the other for 
the said fee, but both parties are in good faith to do everything 
which lies in their power or control to see that the said fees are 
paid. 

Tenth, — No change or alteration shall be made in the terms 
or conditions of this agreement without the consent of both par- 
ties hereto in writing. 

IN WITNESS WHEREOF, the parties to this agreement 
have hereunto set their hand and seals in the City of Phila- 
delphia, Pa., this twentieth day of March, 1905. 

Witnessed by 

(Seal) 

(Seal) 

(Seal) 

(Seal) 

I shall give you before closing one more example of con- 
tract preparation, illustrating a type of agreement that may be 
useful to you some day. It is a partnership contract between 
two engineers. 

Let us assume that Mr. M. S. Clements, hydraulic and san- 
itary engineer of St. Louis, Mo., who has been practicing suc- 
cessfully there in those specialties for many years, desires to 
take in as junior partner his principal assistant engineer, Mr. K. 
L. Strange, and that all the details of the partnership have been 
settled. I shall not state them in advance, as they will appear in 
the document, which I would draft thus. 

MEMORANDUM OF AGREEMENT, by and between 
M. S. Clements, Civil Engineer of St. Louis, Mo., the party 
of the first part, and K. L. Strange, Civil Engineer of St. Louis, 
Mo., the party of the second part. 

WHEREAS, The party of the first part has for many 
years been established in St. Louis, Mo., as a consulting hydrau- 
lic and sanitary engineer, and has developed a large and success- 
ful practice, and 

WHEREAS, The party of the second part has been in the 
employ of the party of the first part for over seven (7) years, 

41 



and during the last three (3) years has been his Principal As- 
sistant Engineer, and 

WHEREAS, The parties to this agreement have concluded 
that it will be mutually beneficial to enter into a partnership to 
prosecute the business of civil engineering in the special lines 
of hydraulic and sanitary work, 

NOW THIS AGREEMENT WITNESSETH: 

First : — The name and designation of the firm shall be Clem- 
ents and Strange, Consulting Engineers. 

Second. — The agreement shall be operative on and aftei 
January 1, 1905. 

Third. — The party of the second part shall in any event re- 
ceive fifteen hundred dollars ($1,500.00) per annum; i. e., if his 
share of the net profits for any year be less than that amount, 
the difference between his said share and the said amount shall 
be paid to him out of the total profits of the firm for the year, 
or, failing these, by the party of the first part. 

Fourth. — ^The share of the net profits of the party of the 
second part shall be as follows : 

Up to Jan. 1, 1908, twenty-five (25) per cent., from then 
until Jan. 1, 1911, thirty (30) per cent, from then until Jan. 
1, 1914, thirty-five (35) per cent., from then until Jan. 1, 1917, 
forty (40) per cent., and after the latter date forty-five (45) 
per cent. 

Fifth. — The net profits for any year shall be figured by 
subtracting from the gross receipts for the said year the entire 
business expenses for the year, such as those incurred in doing 
office work, field work, traveling, and advertising, but the afore- 
said guaranteed amount of fifteen hundred dollars ($1,500.00) 
per annum shall not be considered as a part of the office expenses. 

Sixth. — An accurate set of books shall be kept, from which 
can readily be computed the net profits for the year, and a 
cash settlement shall be made at the* beginning of each year 
for the preceding year. 

Seventh. — If any completed piece of work be unpaid for at 
the end of the year, it shall be assumed as paid for in making 
the settlement; but the party of the second part shall not re- 
ceive his share of the delayed payment until after the said pay- 
ment is made. 

Eighth. — At any time after Jan. 1, 1914, the party of the 
second part shall have tke privilege of purchasing the balance of 
a half interest in the business by paying to the party of the 
first part in cash one of the following sums, according to the 

42 



date of the establishment of the equal partnership. 

In 1914 .$15,000.00 

In 1915 13,000.00 

In 1916 11,000.00 

In 1917 9,000.00 

In 1918 7,000.00 

In 1919 5,000.00 

After 1919 3,000.00 

The payment of anyone of the preceding amounts shall not 
only entitle the party of the second part to a half interest in all 
future business, but shall also make him a half owner of all 
office fixtures, library, instruments, patents, records, and fidd 
apparatus that may be owned by the party of the first part at 
the time of the formation of the equal partnership, it being un- 
derstood that all apparatus, books, etc., etc., purchased for the 
firm before the establishment of the equal partnership shall be 
the personal property of the party of the first part, or simply an 
addition to his present office property, notwithstanding the fact 
that they have been paid for out of the funds of the firm. 

Ninth. — ^All royalties from patents owned by the party of 
the first part on Jan. 1, 1905, shall be thrown into the gross 
profits of the business. 

Tenth. — If in the future any joint patent is taken out, it 
shall be the property of the office, and any royalty or other gain 
therefrom shall be thrown into the gross receipts of the office. 
In case of a dissolution of partnership at any time, the future 
interest in all such joint patents shall be arranged according 
to the basis of division of office profits governing at the time of 
the said dissolution, and both parties shall afterwards have the 
right to use such patents for their own professional work without 
accounting; but in case of royalty thereon by other parties, the 
amount of said royalty shall be divided between the two parties 
to this, agreement according to the basis of division herein pro- 
vided for. 

Eleventh. — Neither party to this agreement shall take out 
for himself any patent for anything connected directly or in- 
directly with the work of the office without first obtaining from 
the other party written permission to do so; but a written re- 
fusal or a verbal refusal in the presence of witnesses to enter 
into a proposed joint patent shall be considered an equivalent 
to giving such written permission. 

Twelfth. — If the parties to this agreement write a joint 
book for publication, the profits on same shall be considered a 
part of the office receipts, and shall be divided accordingly; and 

43 



any technical book written by either party shall be treated in 
like manner as long as the partnership continues. In case of a 
dissolution of partnership, each party shall, for the future, own 
outright any books published in his own name; also the per- 
centage of interest in all joint books that is the basis of division 
of office profits governing at the time of the said dissolution. 

The party of the second part, however, shall be entitled to 
no pecuniary interest in any books written by the party of the 
first part prior to Jan. 1, 1905, even though future additions 
thereto be made. On the other hand, no expense connected with 
such solely individual books shall be considered a part of the 
office expenses. 

Thirteenth. — Whenever the contemplated future equal part- 
nership is consummated, the profits on all contracts for work en- 
tered into before the date of the equal partnership shall be divided 
according to the terms of this agreement, and shall not be con- 
sidered as pertaining to the said equal partnership. 

Fourteenth. — In the event of the death of the party of the 
first part before the formation of the contemplated equal partner- 
ship, the party of the second part shall have the privilege of 
purchasing the good will of the business, together with all of the 
office fixtures, library, records, instruments, and other property 
connected with the business, except as hereinafter stated, by 
paying to the estate of the party of the first part the sum of 
three thousand dollars ($3,000.00) in cash or in an equivalent 
that will be satisfactory to the executors of the said estate. 

It is understood that this sum does not cover any patents, 
either individual or joint, but that the estate of the party of 
the first part shall have a half interest in all royalties therefrom, 
unless after the death of the party of the first part, the party 
of the second part purchases from the estate the said patents or 
shares in patents. And the party of the second part at the set- 
tlement of the office affairs, after the 'death of the party of the 
first part, shall have the privilege of purchasing all of the said 
patents at a price to be agreed upon between the said second 
party and the said executors; and if an agreement as to their 
value cannot be otherwise arrived at, the price shall be settled 
by arbitration, the party of the second part appointing one arbi- 
trator, the executors another, and the two thus chosen, the third. 
In case of failure of the two arbitrators first chosen to determine 
upon a third, the latter shall be appointed by the Mayor of St. 
Louis. By the decision of the majority of these three arbi- 
trators both the party of the second part and the executors shall 
be finally bound. 

44 



In case, however, the party of the second part elects not 
to purchase the said patents, he shall have the use of the joint 
patents by special agreement in each case with the executors, 
but the latter shall have full control of all of Clement's individual 
patents. 

In case of the death of the party of the first part, either be- 
fore or after the formation of the contemplated equal partner- 
ship, the party of the second part shall finish all work on all 
contracts then uncompleted, and shall pay over to the estate of 
the said first party the latter's full share of all net profits there- 
on, as computed by the rate of division governing at the date of 
his death. 

Fifteenth. — In case of the death of the party of the second 
part prior to that of the party of the first part, the estate of the 
former shall receive the same percentage of net profits from all 
unfinished work as would have been his under the terms of this 
contract at the time of his death. And the party of the first 
part shall have the use of all joint patents held by the firm, but 
the estate of the party of the second part shall be entitled to the 
same percentage of royalties accruing from the use of the said 
joint patents as the party of the second part would at the time 
of his death have been entitled to under the terms of this con- 
tract. 

Provided that the party of the first part shall have the privi- 
lege of purchasing from the Strange estate the interest in all 
joint patents held by the party of the second part at the time 
of his death, according to the arrangement previously outlined 
for the case of the death of the party of the first part. 

Sixteenth. — Until the contemplated future equal partnership 
be entered into, the policy and management of all business af- 
fairs shall rest entirely with the party of the first part, but the 
party of the second part shall be consulted, as in the past. 

Seventeenth. — Should either party to this agreement at any 
time desire to cancel the same, he shall give in writing to the 
other party twelve (12) months' notice of his intention to do so; 
and, in case of failure so to notify, he shall, at the date of sev- 
ering his connection with the business, pay to the said other 
party in cash the sum of one thousand dollars ($1,000.00), 
which amount shall not be considered as a penalty but as liqui- 
dated damages (for loss to the said other party) herein agreed 
upon by the contracting parties. 

Eighteenth. — In case of a dissolution of partnership with 
twelve (12) months' notice, all work connected with contracts 
entered into before the giving of notice of dissolution shall be 

45 



completed, if possible; and the profits thereon shall be divided 
according to the terms of this contract. All new work taken 
during these twelve (12) months shall belong to the party who 
is to continue the business and shall be done at his expense, 
the other party being concerned with it in no manner what- 
soever. If at the end of twelve (12) months there still be any 
old work uncompleted, the party who continues the business 
of the office shall finish it and shall give to the other party after 
the final settlement therefor is made his proper share of the 
net profits thereon. It is understood that, unless otherwise 
agreed upon, the party of the first part shall be the one to carry 
on the business in case of a dissolution of partnership. 

Nineteenth. — But in case of dissolution of partnership 
without the twelve (12) months' notice, there shall be made an 
immediate settlement of the affairs of the firm, by which the 
party leaving shall be paid by the other party in either cash or 
notes a fair allowance for his interest in all unfinished con- 
tracts. If the two parties cannot agree upon the terms of the 
settlement, the matter shall be fixed by arbitration in a manner 
similar to that hereinbefore described. 

Twentieth. — No change or alteration shall be made in the 
terms or conditions of this agreement without the consent of 
both parties hereto in writing. 

Twenty-first. — The parties to this agreement hereby agree 
'that they will at all times do all that lies in their power to 
further and increase the business of the firm, and to establish for 
it a world-wide reputation for doing thorough, honest, scientific, 
economic, and skilful work. 

IN WITNESS WHERE0F, The parties to this agreement 
have hereunto set their hands in the City of St. Louis, Mo.,, 
this tenth day of December, 1904. 
Witnessed by 



In concluding this lecture there are a few general matters 
of importance to which I desire to call your attention, especially 
as they are often ignored in the preparation of contracts. 

No erasure with a knife, rubber, or other similar instru- 
ment should be made in any legal document, but if a mistake 
has occurred, it should be lined out in the case of handwriting^ 
and crossed out with a close repetition of the letter x in the 
case of typewriting. Corrections like these must evidently have 
been made while the document was being transcribed and before 

46 



it was signed, while in case of an erasure no one can say what 
was originally written, or that the correction was not made after 
the signing of the document. As a matter of precaution, it is ad- 
visable to have each signer of a contract initial on the margin 
of the page on which it occurs each correction that the docu- 
ment contains. This will show conclusively that all the interested 
parties concurred in making the changes. However, if a draft 
of an agreement contain many such corrections, it is better to 
have it recopied before obtaining the signatures. 

Theoretically every contract should be written on a single 
page, for otherwise what is there to prevent a dishonest person 
from removing all the pages except the last and replacing them 
with similar pages containing matter prepared in his own in- 
terests? Some people meet this objection by pasting together in 
one continuous piece all the sheets of the document and marking 
in red ink on the joined parts a waved line that passes alter- 
nately from one sheet to the other. Others take the precaution 
to have all the parties to the agreement initial each page of the 
bound sheets. The manifolding of typewritten documents is a 
fairly good means for preventing the making of fraudulent 
changes in such papers; but in case that all the copies but one 
are destroyed, this check would become inoperative. 

■ Contracts executed on Sunday are illegal. They may be 
agreed upon and drafted on Sunday, but to be valid they must 
be dated and signed on some other day of the week. 

It is always advisable to let a contract "get cold" before sign- 
ing it, i. e., it should be set aside for at least one night and read 
over carefully the next day by all the parties in order that each 
may make sure that the document expresses exactly in every 
particular what has been agreed upon verbally, and that there 
is no clause in it prejudicial to his interest. By giving the mind 
a rest one is often able to comprehend a document more clearly 
and thus save himself or his clients future trouble or pecuniary 
loss. 

After an engineer has prepared a contract and has added 
all the finishing touches to it, he should submit the draft before 
it is signed to a competent lawyer for his comment. This is bet- 
ter than letting the lawyer draw it in the first place, for I con- 
tend that a competent engineer can draft an engineering con- 
tract better than any lawyer; nevertheless an independent check 
is necessary for any important document, and who so compe- 
tent to check a legal paper as an attorney! 

When I started to write this address it was my intention to 
conclude it with a short summary of the Law of Contracts, but 

47 



its dimensions are already far in excess of those I originally 
contemplated, and perhaps also, some of you may be thinking, in 
excess of the legitimate limits of a lecture to long-suffering en- 
gineering students; consequently I shall instead advise you to 
study the subject carefully in such standard works as those of 
Wait, Johnson, and Parsons. I trust that listening to this ad- 
dress and studying it later after it is printed will lead you better 
to comprehend and to appreciate the dicta of legal authorities on 
the subject of Engineering Contracts. 

Finally, I desire to call your attention to the fact that I 
have by no means endeavored to cover in this address the entire 
ground of this important subject, but only to show you its prac- 
tical features and how you may prepare yourselves by hard study 
to become expert in the preparation of legal-engineering docu- 
ments. 



48 



